Question

ii) Please provide sufficient interpretations of the ratios and explain their change (or no change) from the year before, in a 1-2 paragraphs. If there's anything unusual or notable, please explain. Please be cautious about the signs on financial statement figures, especially on the income and cash flow statement. Some companies choose to report expense items as negative numbers because they get subtracted from the revenue to obtain the net income. When calculating the ratios, use your judgement to adjust their signs appropriately.

Please provide an interpretation based of off thse Texas Instrument’s Turnover Ratios in 2017-2018.

Answer 1

Answer:-

Texas Instrument's analysis

The inventory turnover which is COGS / average inventory has decreased from 2.7322 to 2.4840 which lead to increase the days sales in inventory ( DIO) ( 365 / inventory turnover) from 133.58 to 146.94 which tells number of days it took a company to sell its inventory, which will increase the cash conversion cycle. Lower the Days sales in inventory is preferred as it decreases the cash conversion cycle.

Receivables turnover is Sales / Average receivables which increased from 11.706 to 13.077 which decreased the days sales in receivables (DSO) ( 365 / Receivables turnover) from 31.179 to 27.91 which shows that the company is getting the cash earlier in 2018 than 2017 which will decrease the cash conversion cycle. The lower the days of sales in receivables the lower the cash conversion cycle.

Cash conversion cycle = DSO + DIO - DPO

The lower the DSO and DIO the lesser the cash conversion cycle and the DPO is days payables outstanding which should be higher.

The total asset turnover which is net sales generates as a percentage of assets which increased from 0.848 to 0.921 is a good sign and indicates the company's asset utilization has improved from 2017 too 2018.